BOE’s Bean Cautions Final-Quarter Growth May Be Weak

Charles Bean, deputy governor of the Bank of England, said that about half of the third-quarter growth was due to a recovery from output that was lost in the second
quarter because of an extra public holiday for Queen Elizabeth II’s Diamond Jubilee, while the London Olympic Games added an extra boost. Photographer: Simon Dawson/Bloomberg

Oct. 29 (Bloomberg) -- Bank of England Deputy Governor
Charles Bean cautioned against over-optimism following third-quarter gross-domestic-product data and said U.K. growth may be
weak in the final three months of the year.

The figures were “stronger than we expected, but we should
avoid getting over-excited,” Bean said in an interview with Sky
News television yesterday. “It’s quite possible that we see
weak growth in the next quarter. The big picture is of an
economy that’s been bumping along the bottom.”

The bank’s Monetary Policy Committee will meet Nov. 7 and
Nov. 8 to decide whether to increase its 375 billion-pound ($604
billion) stimulus program as it seeks to support the recovery.
Policy makers are split over the need for more asset purchases,
minutes of the October meeting indicated. Data on Oct. 25
showing the economy surged 1 percent, the fastest pace of growth
in five years, is likely to add to divisions.

Bean said that about half of the third-quarter growth was
due to a recovery from output that was lost in the second
quarter because of an extra public holiday for Queen Elizabeth
II’s Diamond Jubilee, while the London Olympic Games added an
extra boost.

Asked how the third-quarter GDP figure will influence the
central bank’s decision on whether to add to quantitative
easing, Bean said that “it’s always a mistake to read too much
into one figure.”

The pound fell against the dollar and was trading at
$1.6066 as of 8:14 a.m. in London, down 0.2 percent on the day.

‘Broadly Flat’

In an interview published in the Times newspaper in London
today, Bank of England Chief Economist Spencer Dale was quoted
as saying the third-quarter growth data doesn’t change the “big
picture, which remains that output over the past year has been
broadly flat.”

Dale was cited as saying that in the fourth quarter, “in
terms of the headline numbers, I expect to see a very sharp fall
back,” and predicting a “period of relatively weak growth over
the next couple of years.”

Bean’s and Dale’s caution echoes that of Deputy Prime
Minister Nick Clegg in an interview published in yesterday’s
Observer newspaper.

“I have always said our recovery is going to be slow,”
the newspaper cited Clegg as saying. “It is part of a long
healing process; it is part of a complex rebalancing process and
the recovery is going to be fitful.”

‘Feeling Squeeze’

The opposition Labour Party’s business spokesman, Chuka
Umunna, said in an interview on Sky that “the statistics are
one thing; how people feel is another.” Businesses “are not
seeing the orders come through, families, individuals are still
feeling the squeeze on their living standards,” he said.

Conditions in the U.K. banking system have also shown
“some signs” of improvement, he said. He said that the Bank of
England will be “proactive” and “interventionist” when it
takes over new responsibilities for bank regulation.

Euro-Area Risks

“U.K. banks made significant progress in improving their
resilience,” Bean said. Even so, “we still think there’s risks
out there, most particularly from the euro zone.”

While inflation cooled to an almost three-year low of 2.2
percent in September, it remains above the central bank’s 2
percent target and some policy makers have voiced concerns that
recent energy and food cost increases may boost price pressures.

“Normally we would have expected in an economy this weak
for inflation to be quite a bit below target, and we are not
seeing that,” Dale was cited as telling the Times. “This
stickiness in inflation is something we need to take into
account when we are thinking about exactly how much more
stimulus we need to apply.”

Dale also said the recent strengthening of the pound was
“not good for us in terms of keeping this sort of rebalancing
of the economy,” the Times reported. “If the exchange rate
shifted up very dramatically, other things being equal you would
have to take that into account in terms of policy,” the
newspaper cited him as saying.

Dale said officials should examine whether the central
bank’s inflation-targeting regime should be changed, according
to the newspaper.

“Over the next few years we should seriously think about
whether that” inflation targeting “is the right kind of
framework,” he was quoted as saying. “Ultimately, it is a
matter for the government, but I am happy to play my role.”